New Rules for Standard Clauses in Consumer Contracts: China’s Contract Administration Regulations Have Taken Effect

China’s State Administration for Market Regulation (the “SAMR”) recently released updated Measures for Administrative Supervision and Administration of Contracts (the “New Measures”), taking effect on 1 July 2023. They replaced the previous Measures on Supervision of and Dealing with Contract-related Violations (Revised in 2020) (the “Old Measures”).

The New Measures apply to standard clauses in contracts between consumers and businesses. The competent Administration for Market Regulation (the “AMR”) oversees contract administration per these New Measures, without determining civil legal validity or impacting civil liability. This clarification prevents conflict with civil law, maintaining civil legislation’s jurisdiction over contract validity.

The New Measures’ main purpose is to prevent unfair standard clauses used by businesses to reduce responsibilities, increase consumer obligations, or restrict consumer rights. While the PRC Civil Code and the PRC Consumer Protection Law prohibit unfair standard clauses in general, the New Measures provide more detailed guidance for businesses. Examples are the following:

1. In addition to the typical standard clauses used in business operators’ general terms and conditions, the New Measures stipulate that pre-formulated notices and store signs etc., specifying contractual rights and obligations of both parties, shall also be regarded standard clauses.
2. For standard clauses related to substantial consumer rights and interests, the PRC Civil Code and the PRC Consumer Protection Law require reasonable and prominent highlighting without specifying methods. The New Measures elaborate by clarifying that acceptable methods include “separate notifications, bold fonts, pop-ups, or other prominent means”.
3. The Old Measures listed specific examples for prohibited exclusion clauses on business operators’ liability and consumers’ rights. The New Measures broaden the prohibition beyond just excluding or exempting liability and rights by prohibiting even clauses reducing the business operators’ liability or restricting the consumers’ rights.
4. Regarding prohibited exemption clauses, the New Measures specify standard clauses should not exempt or reduce business operators’ obligations like assistance, notification, and confidentiality duties inherent to the contract purpose and nature.
5. While the PRC Civil Code states standard clauses should be interpreted against the drafter, the New Measures goes into the same direction by expressly prohibiting businesses to reserve their sole interpretation rights. Moreover, standard clauses expressly reserving the sole interpretation rights for businesses can be penalised under the New Measures. Since the relevant fines are higher than those under the Old Measures, this leads to strengthening consumer protection.
6. The New Measures require the business operator to clearly inform the consumer on steps, precautions, methods of downloading etc. for online contracts and ensure that the consumer is able to read and download the e-contracts conveniently and completely. However, violations do not result in administrative penalties hereunder.
7. For violations of adopting unfair standard clauses (as partially mentioned in items 1 to 5), and using contracts to engage in unlawful acts that disrupt market economic order and endanger state and public interests, maximum fines have been raised from RMB 30,000 to RMB 100,000 in the New Measures. Administrative penalty decisions will be publicly disclosed via the national credit information system. Penalties can be mitigated or waived for minor violations that are promptly corrected with either mitigated harm or no harm.

Furthermore, the New Measures formally grant AMRs at the provincial level or above the permission to create model contract texts for specific industries or areas, providing legal foundation for such model contract texts. These model contracts will be publicly available for free access, download, and usage. Prior to the issuance of the New Measures, the National Model Contract Texts Library was officially launched on the website of the SAMR in June 2022. As of May 2023, this library has published over 500 model contract texts that were formulated and published in recent years by the AMRs across China. These model contract texts cover consumer contracts, for example the Guangzhou Online Transaction (B2C) Contract and others.

With the New Measures now in effect, we highly recommend that businesses undertake a comprehensive review of the standard terms and conditions used with consumers and any notices etc., that might be categorized as standard clauses according to these New Measures. To ensure compliance and to avoid any potential violations and penalties, it is advisable to consider making necessary adjustments to these standard clauses per the regulations.

For full text of the Measures for Administrative Supervision and Administration of Contracts, please refer to the following link: https://www.gov.cn/gongbao/2023/issue_10606/202307/content_6894764.html